Everything You Should Know about Personal Loan

By siliconindia  |  Thursday, 28 January 2021, 12:09:34 PM IST

Everything You Should Know about Personal Loan

Did You Know?

According to the RBI’s February 2020 reports personal loans accounted for 28% of the total credit offerings of the banking sector in India in the last fiscal.

Financial distresses do not come with a warning. If you do not have enough saved for a rainy day, personal loan canturn out be your saviour.

The recent global Covid-19 pandemic has brought over a lot of uncertainty, with many businesses being laid off or manpower being downsized. Under these circumstances, meeting personal expenses, such as home renovation, wedding, emergency medical expenses, or children’s education fees, has become quite difficult. Personal loan, in such a case, can help you find a footing for some time. However, before you take the plunge, take note of the following:

You can avail personal loan for variety of reasons

Any personal reason is a valid reason to avail personal loan. Normally, personal loans are availed when an expense is huge enough not to be met by a credit card, such as a wedding, business investment, or any other personal issue. While personal loans are general purpose loans, some lenders may specify the type of loan and the purpose for which it may be utilized.

Improve chances of approval

To boost your chances of getting the application approved, try following tips:

  • Check your credit score
  • Clean up your credit report by making payments in time
  • Ensure that you have a stable and consistent income
  • Maximize your existing debts by reducing your debt-to-income ratio

Negotiate for a better Rate of Interest

All it requires is a bit of preparedness and homework on your part to negotiate for a better rate of interest (RoI). The following checklist will help you bid for a lower rate:

  • Good employment history or a steady source of income in case of self-employed individuals
  • Maintaining good financial hygiene by paying your liabilities in time
  • Opting for a lender with whom you already have an established relationship
  • Reducing the loan term
  • Offering collateral for security, provided you have the property papers in place
  • Looking out for seasonal discounts or offers
  • Check whether you fall into the list of applicants who are offered subsidized rates (for instance, senior citizens)

Too many enquiries, too much risk

Whenever you are applying for a loan, ensure that you comparetheterms ofdifferent lenders. However, take enough caution to ensure that that they are soft enquiries and not the hardones. It would be wiser to use online marketplaces for comparing loans asbeing a loan applicant to too many lenders will affect your credit score. Lenders will categorize you as a risky applicant, who carries a higher risk of defaulting on the loan.In such cases, your loan application might get rejected or you might require settling for unfavourable terms.

Keep your documents in place

Although lenders quickly process loans with minimal documentation these days, keeping your documents in place will make your life much easier. Your financial standing, your current income, and your risk portfoliocould only be proved by these documents.

Flexi-terms

Some lenders offer flexible terms that may be favourable for you. A higher credit standing gives you the leverage to negotiate for better terms.

Instant personal loans

After adequate documentation, some lenders disburse the loan amount in as low as 24 hours.So, it is quite possible to avail instant loans in emergency. However, a traditional financial institution might have stringent financial regulations.

Secured andunsecured loans

These days, many financing companies are offering a personal loan without any collateral, provided you have good financial history to your credit. Personal loan is usually opted for when you do not have an asset to mortgage.However, if you are aiming for a lower interest rate, it is better to put collateral to reduce your risk quotient.

Loan tenure

The tenure of a personal loan typically ranges anywhere between one to five years. The formula is simple, higher the tenure, higher the interest rate charged by the lender. If it is possible for you to part with liquidity for a higher amount, opt for a loan of lesser duration.

Latest updates on personal loans

The outbreak of Coronavirus has caused financial distress to many, with many individual borrowers losing their jobs or sources of income. The RBI has granted relief to these borrowers by allowing lenders to restructure the loans. Subject to certain conditions and specific types of personal loans only, restructuring is allowed till 2020 end. The terms of restructuring may include conversion of interest accrued into credit facility, granting moratorium, or rescheduling of payments.

To sum up,

With many traditional and non-traditional financial institutions operating, India's lending market is quite complex. Every lender is different and comes with a different set of requirements. A traditional setup will call for stringent regulations and may require all documents to be in place. On the other hand, Fintech companies, private lenders, neobanks, etc., might provide instant loan disbursal without much paperwork. Choosing the lender will completely depend on the terms you are looking for. However, be vigilant and check for scams before you select a lender.

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